Credit Suisse slashed its price target on Next on Tuesday to 6,450p from 8,025p as it argued the stock is higher risk than it looks.
Following the retailer’s first-quarter results, the bank cut its FY sales growth estimate from 7% to 6.5% and its pre-tax profit estimate from £866m to £830m, versus guidance of £830m. It said that given better weather in March/April, Q1 sales were “marginally disappointing”.
It noted the shares are down 19% year-to-date, making it among the best performing stocks in its coverage, despite most ecommerce peers being de-rated to record lows, its credit exposure and its core mid-market family customer being “economically challenged”.
“High margins provide protection from operating de-leverage, but the low short interest also shows the extent that the market is already discounting strong execution, especially in a challenging online environment,” CS said.
CS said the next catalyst is the second-quarter update in August and that the downside risk relates to UK demand and inability to pass on higher prices. “On the upside, there is upside potential for guidance given Next’s usual conservatism and favourable channel mix,” it added.
The bank maintained its ‘neutral’ recommendation on the shares.
